Between 2008 and 2010, nuclear energy enjoyed a renaissance. After 20 years of suffering from poor public opinion following the accident at Three Mile Island and the disaster at Chernobyl, nuclear power was coming to be viewed as a cleaner way of generating electricity.

Countries ranging from Switzerland and Spain to the US and Brazil began uprating their existing reactors to produce more energy, while planning the construction of new ones. Even China was beginning a nuclear building boom in a bid to lower carbon emissions and develop more reliable sources of electricity.

As you can see below, in anticipation of that building boom uranium prices shot up from around $50 per pound in 2009 to about $73 per pound by early 2011.

Then, in March 2011, a magnitude 9 earthquake broke loose off the Pacific coast of Japan, triggering a massive tsunami that washed over the Fukushima Daiichi nuclear power station. As seawater overwhelmed the plant, a reactor meltdown ensued that destroyed three of the plant’s six reactors and triggered a Level 7 nuclear event on the International Nuclear Event Scale, putting it on the same level as Chernobyl.

Because of that accident, the world’s rekindled nuclear ardor cooled and uranium prices plunged to their current level of $35 per pound. Japan vowed to break its dependence on nuclear power and shut its reactors down, Europe began rethinking its use of nuclear energy, and in the US most plans for reactor construction were essentially scrapped.

But old habits are hard to break. When Japan’s Prime Minister Shinzo Abe took office a bit more than a year ago, he promised to rethink the government’s decision to idle all of the country’s nuclear reactors. In the wake of the shutdown, Japan has become heavily dependent on natural gas to fuel its electricity needs, driving a spike in the price of Asian liquefied natural gas (LNG).

The LNG price spike has resulted in higher heating and electricity prices in Japan and across the region. Consequently, Abe’s government has proposed restarting at least some of the country’s nuclear power stations in its recently released Basic Energy Plan.

While details are still scarce, the plan supports the restart of about a dozen of the country’s 50 still usable reactors and perhaps the construction of new ones. While it is unclear if nuclear power will resume its role in supplying about 30 percent of the country’s electricity needs, several government ministers have referred to it as an important source of base load power.

The Politics of Power

Japanese public opinion on nuclear power is still mixed, but pro-nuclear candidates have won a couple of key elections in the country.

On February 9, former Health Minister Yoichi Masuzoe won Tokyo’s gubernatorial election, mopping the floor with two prominent anti-nuclear candidates, including a former prime minister. Later that month, Tsugumasa Muraoka, a former Interior Ministry official on a pro-nuclear platform, won in Yamaguchi prefecture south of Hiroshima. He is in favor of plans to build a new reactor in the town of Kaminoseki.

The simple fact is that nuclear reactors provide hundreds of jobs locally and thousands of jobs across Japan. They also bring lucrative government subsidies to regions, adding millions of yen to local economies.

And when you get right down to it, most of the voting public doesn’t care for rising electricity bills, which was the result of the shutdown of Japan’s nuclear reactors. There’s also the obvious problem of a skewing trade balance as Japan was forced to import LNG.

How to Play It

This publication has been predicting this chain of events for more than a year. Regardless of whether we’re talking about Japan, China, Europe or a host of other countries around the world, nuclear energy has become too ingrained into the world’s electricity supply to be abandoned completely, thanks to switching costs.

At the same time, we face a growing global awareness of climate change and its impact on weather patterns. It’s nearly impossible for governments to meet emissions targets without including nuclear energy in the mix, given the technological state of today’s alternative energies. While the day will come when we can rely on solar, wind or geothermal energy to meet most of our electricity needs, today is not that day.

Since November 2012, when I last recommended Cameco (NYSE: CCJ), the largest and lowest-cost uranium producer in the world, its shares are up by nearly 40 percent.

While I recommended buying Cameco shares up to 22 at the time for more aggressive investors, I didn’t add it to our Resources Portfolio at the time because of volatility concerns. I looked for continued pessimism and price fluctuations with uranium to create wild swings in the company’s valuation. And swing it did.

During the fourth quarter, Cameco boosted its revenue to $977 million, a 15 percent increase compared to the same period in 2012, thanks to a slight bump in production. However, earnings per share (EPS) were off 36 percent to $0.38, largely because of a 4 percent difference in the average realized selling price of uranium, which fell from $49.97 in the prior year period to $47.76.

For the full year, the company’s results were more encouraging, with revenue up 29 percent year-over-year to $2.439 billion and EPS up 2 percent to $1.12. Average realized price was also up 1 percent, from $47.72 in 2012 to $48.35 in 2013.

Going forward, while quarter-to-quarter results are likely to remain somewhat volatile, I look for a substantial improved in earnings.

As you can see from the graph above, uranium demand is forecast to continue growing because of new reactor construction and the fueling needs of existing reactors. But rock-bottom uranium prices over the past year have shaken a number of smaller producers out of the market even as existing stockpiles have been run down.

As a result, Cameco forecasts that at least 20 percent of demand over the next five years will have to be met through new production, a niche that the company is well positioned to fill even as supply constraints drive prices up.

Given the improving outlook as the Japanese look to restart at least some of their idled reactors, I’m now adding Cameco to the portfolio as a buy up to 30.